Transactive Energy: The next step for the digital grid?

Definitions of transactive energy (TE) can be deceptively bland. The GridWise Architecture Council defines it as “the use of a combination of economic and control techniques to improve grid reliability and efficiency.” The Transactive Energy Association is more specific: “Transactive Energy engages customers and suppliers as participants in decentralized markets for energy transactions.” Seems like a good idea and something that should happen, but not all that revolutionary at first glance. That said, first glances can be deceiving because TE could be the biggest land grab in the next phase of the digitalization of the grid – and it could go to utilities, device vendors, energy retailers… or maybe even tech companies.

TE is a framework where rather than setting energy prices by negotiation between regulatory bodies and utilities every few years, prices are set via transactions between any and all grid participants. The challenge, from the perspective of Steve Widergren, principal engineer at PNNL and founding administrator for the GridWise Architecture Council (GWAC), is in establishing common products and standards that can be applied across an energy system.

TeMix is one company working on establishing common products and advancing TE. Dr. Ed Cazalet, CEO and President of TeMix, views TE as the ultimate pricing solution for the evolving grid due to its transparency and flexibility, with issues like rooftop solar tariffs and EV integration demonstrating how time of use tariffs and similar mechanisms are “bandaid solutions that do not fix the underlying inadequacies” with tariffs as a whole. TeMix’s innovation lies in its development of a framework of standardized products – a “transport” product and energy products ranging from 4-second to hourly intervals – that can be transacted as far in advance as parties desire. With the ability to execute forward contracts, transactions can be aggregated to create “subscriptions” for longer-term service. Critically, such a structure would enable infrastructure investment optimization and certainty, providing clear definition of and payment for the distribution system’s value.

Organizations like Pacific Northwest National Laboratory have been looking at TE since the mid-90s, and pilots such as the gridSMART (American Electric Power Ohio) and Pacific Northwest Smart Grid Demonstration Project demos were launched in 2010. TE has gained momentum since then, with the GridWise Architecture Council (GWAC) and the National Institute of Standards and Technology (NIST) launching initiatives to establish operating standards for TE in the last few years. Utilities and regulatory bodies are also participating in more pilots. TeMix and Universal Devices, Inc. are currently conducting a TE pilot (Retail Automated Transactive Energy System or RATES) with its product framework with Southern California Edison, the California Energy Commission and California ISO. Opus One Solutions is also demonstrating its real-time energy networking platform in a pilot with partners Advanced Microgrid Solutions, Smarter Grid Solutions, and Ryerson University, and utilities Nova Scotia Power, Emera Maine, and Toronto Hydro.

Looking forward, one of the major areas to watch is the data, computing, and processing architecture underlying TE. Blockchain is one technology that could provide the ledgers TE systems require, and Widergren points out that the distributed nature, universal purpose, and auditability of blockchain-based solutions align well with TE. LO3 Energy and Power Ledger are example start-ups focused on blockchain-based energy platforms, currently targeting peer-to-peer applications (note: P2P and TE overlap but are distinct, with one example of the difference being P2P systems focusing solely on excess rooftop solar production – which is not TE). However, Cazalet also notes that one of the stumbling blocks may be that blockchain transactions can take 15 minutes or more to clear (unless a private blockchain is used, which devalues many of the benefits claimed for public blockchains) – a major issue when running a market for energy in 5-minute blocks, much less 4 seconds. Another blockchain challenge that Cazalet highlights is the ability to scale downwards – as transactions get smaller and smaller, the energy needed to process the transaction can actually exceed the amount of energy transacted. Lighter weight blockchain-based solutions may be necessary to provide ledgers with the functionality required for scalable TE. For these and other reasons, the RATES pilot is running on standard cloud services (think Amazon Web Services or Microsoft Azure).

These companies are only a subset of the potential players in TE, as Widergren views TE as a product that could be an attractive addition for a broad range of companies – utilities, AMI vendors, energy retailers, energy management/controls companies, lighting companies, rooftop PV providers, and more. Companies like Itron (AMI), Tesla (both EV and rooftop PV integration), GE (Current and lighting), and Constellation (energy retail) all have entry points into TE at this point. While today’s connected devices companies could pave the lowest-cost path to TE by deploying their products, what will be fascinating to see is whether those same companies end up being the winners. Implementing TE is one thing, but generating value from it seems to lie in FAMGA (Facebook, Apple, Microsoft, Google, and Amazon) territory. System optimization through analysis of hordes of data? OK Google. Taking a small slice of every economic transaction? I see you, Alexa. While we are a long way and at least a few major regulatory decisions from TE becoming a reality, its drivers and enablers are quickly coming together.

*For those who seek further information, TeMix and GWAC both provide more in-depth resources.*

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Sounds like a very complicated way to get what I call “Customer Lowered Electricity Price” or CLEP. It’s full definition is found on my website within the 8 slide, PowerPoint presentation at the bottom of the following link:http://www.buildingscienceinnovators.com/customer-lowered-electricity-price.html
the definition is on a single slide, the 3rd slide.
At this moment, I can’t say which between CLEP and Transactional Energy is superior, but I can say that CLEP is much easier to define and should require very little effort on the part of a regulator to allow.. the only thing missing in some places are Smart Meters… with that and a voluntary, two-directional CLEP tariff decision by a regulator, you’re off to the races. In this way you get a continuous method of Market-Based Acquisition that will get the benefits of a Reverse Auction without all of the fan fare or big players.
We just need a pilot.
Thank you very much, in advance, for taking a “deep dive” into my alternative and perhaps better way to do this.